Has the Euro Passed Its Own Stress Test?

The rising fear was a major reason euro-zone governments approved a $1 trillion rescue fund to help its debt-plagued members transition to sustainable fiscal budgets.

Since the $1 trillion rescue fund's passage, Greece has approved austerity measures and spoken with a welcomed candor about its budget deficit reduction plan. Further, Spain, Portugal, and Greece have successfully sold 50 billion euros ($64 billion) in debt, Bloomberg News reported Thursday, in acts that signal that investor confidence is on the mend.

And in the process the euro has risen from $1.16 to about $1.29 versus the dollar.

Monetary/Economic Analysis: Although we're still in the initial stage of 'Financial Crisis II - Europe's Story,' the early diagnosis is encouraging. The premium debt-plagued nations must pay to attract capital is narrowing, but the key will be the high-debt nations' ability to follow-through and pass budget cuts in subsequent years.

Further, given the way objective economic conditions can change so quickly in today's global economy -- a nation with 3% annual GDP growth forecast can become a nation in a contraction in two quarters -- investors aren't looking too far ahead. They'll view signs of continued budget-cutting in the nations that must undertake it and 2-3% GDP growth in Germany and France as a moral victory for 2010.